We have the greatest health care system in the world. – Senator Richard Shelby (R-AL)
Our current system is the most expensive, bureaucratic, wasteful, and ineffective in the world. – Senator Bernie Sanders (I-VT)
Obviously these senators cannot both be right. In the first of this three-part article we began by considering whether or not our healthcare system needs to be radically changed. In the second part, we looked at Senator Sanders’s recent healthcare reform proposal, which calls for extending Medicare to all Americans. Then, in the third part, we shall provide an estimate of the cost of his proposal.
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Part 3. How much will Medicare for All cost and how will we pay for it?
As our starting point for figuring out how much Medicare for All will cost, we shall look at our current spending on Medicaid and Medicare. There are 74 million Americans receiving Medicaid and another 55 million on Medicare. There are also 9 million children from low income families receiving medical care through Childrens Health Care Program (CHIP) and 9 million discharged veterans receiving medical care through the Department of Veterans Affairs.
The population of the United States is 326 million, of which147 million – 45 percent – has its healthcare paid for by the government. Senator Sanders is proposing that we can substantially reduce our nation’s healthcare bill and provide much better medical care by approximately doubling its coverage.
In an article in The New York Times, Robert Frank points out that the health of most of the recipients of Medicaid, Medicare, and veterans’ health programs – the poor, the old, and the disabled -- is in general, much worse than that of our nation’s general population.
Consequently, it will cost much less per capita for the federal government to provide healthcare for the people who join Medicare for All than it does for the Medicaid, Medicare, and veteran’s care recipients. Somewhat analogous is the effort under Obamacare to induce relatively healthy uninsured people to buy private insurance policies.
Estimating the cost of Medicare for All
Let’s begin with the $550 billion annual bill for Medicaid recipients. That is paid by the federal, state, and local governments from their general tax receipts. Sanders proposes that the federal government now pay the full amount.
Now let’s add on the $590 billion that is provided to Medicare recipients. That is a federal expense. Medicaid and Medicare are the Big 2 of government healthcare spending. CHIP adds another $14 billion a year and the veteran’s health program costs $75 billion.
How much does the government spend on healthcare each year? Let’s do the math: $550 billion + $590 billion + $14 billion + $75 billion = $1,229 billion, or slightly more than $1.2 trillion.
Joining Medicare for All will be completely voluntary, and four groups of people will predictably not opt in, even though they have paid payroll tax their entire working lives. The first group consists of veterans who are happy receiving healthcare from the Department of Veterans Affairs. Members of the second group refusing to opt in are those fortunate enough to be covered by “Cadillac plans” paid for by their employers. Then, there are the wealthy, who would prefer to pay for their own medical care, which would presumably be better than that provided by doctors who accept Medicare patients. And finally, we have the folks who refuse to participate in “socialized medicine,” and insist on either buying their own private medical insurance, or else going uninsured and paying for their medical care out-of-pocket.
So if we were to estimate how much it would cost us to extend publicly supported healthcare to all Americans who chose to enroll, the additional cost would be substantially less than $1.2 trillion. My own guess would be about $800 billion. Yours might be somewhat higher, or perhaps even a little lower.
But we do need an estimate for the total cost of Medicare for All, and mine comes to $2 trillion, which I got by adding the $1.2 trillion the government is currently spending and the additional $800 billion it will spend under Medicare for All.
Paying for Medicare for All
Now we need to answer the two-trillion-dollar question. Since we already are paying for $1.2 trillion for government financed healthcare, the real question is this: How do we come up with another $800 billion?
Until now, healthcare insurance provided by employers to their workers was not taxed as income. If it were, then personal income tax and payroll tax receipts would rise by $260 billion. Senator Sanders proposes that the IRS begin to tax this benefit. How much would this increase tax receipts? By $260 billion a year.
How do we raise the remaining $540 billion? We could raise the Medicare tax rate, which is currently 2.9 percent on all salaries and wages (employees and employers each pay 1.45 percent.) We can also raise the monthly premiums that Medicare beneficiaries pay – especially those in the higher income brackets.
We might also consider charging younger enrollees higher premiums since, unlike those over 65, they haven’t paid into the system for as long.
We could also raise tens of billions a year by placing a tax on financial transactions, a proposal which Senator Sanders happens to support. It has the added virtue of falling on foreigners as well as Americans.
A single-payer healthcare system has three built-in advantages. Much lower prices could be negotiated for prescription drugs, doctor visits, medical procedures, and hospital stays. Administrative costs, about one quarter to one third of our nation’s healthcare bill could be reduced to about two percent – which is the cost of administrating Medicare and Medicaid. And research on outcomes of various medical procedures and treatments, as well as the efficacy of an array of drugs could be widely shared, rather than leaving that up to pharmaceutical representatives, whose knowledge is limited and whose motives are inherently suspect.
It is highly unlikely that Medicare for All will be enacted until our nation undergoes widespread political change. Senator Sanders, who was a star long distance runner in high school, is in this for the long run. As long as he stays in this race, he’s got a shot at winning.
Full disclosure: Bernie Sanders and I ran track together in high school, and were roommates for one semester at Brooklyn College. When he ran for president, I provided the media with information about Bernie’s high school and college days.
About the Author
Steve Slavin has a PhD in economics from NYU, and taught for over thirty years at Brooklyn College, New York Institute of Technology, and New Jersey’s Union County College. He has written sixteen math and economics books including a widely used introductory economics textbook now in its eleventh edition (McGraw-Hill) and The Great American Economy (Prometheus Books) which came out last month.